The dollar index inched higher on Thursday and the Chinese currency strengthened after the Chinese central bank fixed the yuan at a stronger level than expected, boosting risk appetite. The People's Bank of China (PBOC) set the midpoint rate at 7.0039. The fixing was still the weakest in more than a decade, however.
"Last night fixed over 7 and markets seem to be taking that fairly well, so perhaps some calm is installed in the market at least for the very near term," said Mazen Issa, senior FX strategist at TD Securities in New York. Data showing a surprise increase in Chinese exports in July from a year earlier added to the improving sentiment. The dollar fell 0.19% against the offshore yuan to 7.0681. The dollar index against a basket of currencies gained 0.07% to 97.614.
On Monday, China allowed its currency to weaken past 7 per dollar for the first time since 2008, sparking broad risk aversion on concerns that the US-China trade war was escalating. The euro jumped briefly on Thursday after Reuters reported that Germany is considering ditching its long-cherished balanced budget goal by issuing new debt to finance a costly climate protection package.
The single currency has been boosted in recent days by the unwind of emerging market carry trades that were funded in euros.